A new buy-to-rent study from RealtyTrac.com shows the average potential annual gross rental yield still is holding strong, and only down slightly from a year ago. “In most areas of the country it is still a great time to buy residential property as rentals, given the continuing slide in homeownership rates,” said Daren Blomquist, vice president of RealtyTrac. “Investors buying rentals can take advantage of the strong demand for rentals now from Millennials and recovering homeowners who are either hesitant to buy because they are not as confident in homeownership or do not qualify to buy.” It is important for investors to look at the specific figures in the markets, and RealtyTrac.com has figures going down to the ZIP code level, which is important in the top markets such as Atlanta, Detroit, Cleveland and Philadelphia. (Click on the interactive map here to see more detail from RealtyTrac.com.) Across all 285 counties analyzed, the average potential annual gross rental yield was 8.94 percent for three-bedroom residential properties purchased in the first five months of 2015, down from a 9.07 percent average potential rental return for three-bedroom residential properties purchased in the same time period a year ago in those same counties. Buy-to-rent still a good strategy for real estate investors “In the future we would anticipate more of those Millennials and recovering homeowners would decide to buy, and that provides a Plan B exit strategy for investors who may want to sell their rental properties in a few years down the road,” Blomquist said. “Investors can use RealtyTrac to identify markets that are best for buying rentals by visiting our Stats & Trends section and plugging in a state, county, city or ZIP code to see various housing and demographic trends,” he said. “A few key ones to look at there are the ‘Foreclosure Discount,’ which provides investors insight into how much of a discount they can get buying a foreclosure in that market (the bigger the upfront discount the more opportunity for bigger returns on a rental property); the median household income, which will provide insight into what most people will be able to afford in terms of rent (a simple calculation is: multiply the median income by 30% to see what rent a median income earner could reasonably afford); and unemployment rate, which provides insight into the pool of potential renters as well as likelihood of turnover in renters,“ Blomquist said. “As home price appreciation moderates and aligns more closely with trends in rental rates, the returns in the buy-to-rent market are stabilizing and becoming more predictable—if not as lucrative as they were for investors who purchased a few years ago near the bottom of the market. Buying rentals continues to be a brilliant strategy that allows investors to hedge their bets in a real estate market shifting away from homeownership and toward a sharing economy,” Blomquist said. Average rental rates on three-bedroom properties increased 3 percent from a year ago across all 285 counties analyzed, while average home prices on three-bedroom properties increased 4 percent across those same counties. Counties with increasing buy-to-rent returns Potential buy-to-rent returns still increased in 116 of the 285 counties analyzed (41 percent) thanks to rental rate growth outpacing home price growth in those counties. Major counties where potential buy-to-rent returns increased from a year ago included Orange County, California, in the Los Angeles metro area; King County, Washington, in the Seattle metro area; Santa Clara County, California, in the San Jose metro area; Philadelphia County, Pennsylvania; and Suffolk County, New York, on Long Island. Other major markets with year-over-year increases in potential buy-to-rent returns included counties in Cincinnati, Cleveland and Columbus in Ohio; Atlanta; Charlotte and Raleigh in North Carolina; Milwaukee; Jacksonville, Florida; Seattle; and Denver. Best counties for buy-to-rent returns Counties with the highest potential rental returns for three-bedroom properties purchased in the first five months of 2015 were: Clayton County, Georgia, in the Atlanta metro area (24.05 percent annual gross rental yield) Bay County, Michigan, in the Bay City metro area (19.23 percent) Mahoning County, Ohio, in the Youngstown metro area (19.04 percent) Bibb County, Georgia, in the Macon metro area (18.11 percent) Philadelphia County, Pennsylvania (17.67 percent). There were 51 counties with a combined population of 18.5 million where potential buy-to-rent returns were 10 percent or higher and where average weekly wages in the fourth quarter of 2014 increased 3 percent or more from a year ago. These counties included Wayne County, Michigan, in the Detroit metro area (15.50 percent annual gross rental yield); Cuyahoga County, Ohio, in the Cleveland metro area (14.62 percent); Milwaukee County, Wisconsin (12.15 percent); Erie County, New York, in the Buffalo metro area; and Duval County, Florida, in the Jacksonville metro area (13.39 percent). Best ZIP codes for buy-to-rent returns RealtyTrac also analyzed potential buy-to-rent returns in 4,657 ZIP codes with sufficient fair market rent and home price data in the first five months of 2015. ZIP codes with the highest potential rental returns on three-bedroom properties purchased in the first five months of 2015 included ZIP codes in the Detroit, Atlanta, Cleveland, Philadelphia, Jacksonville (Florida) and Memphis metro areas. There were a total of 105 ZIP codes with a gross annual rental yield of 18 percent or higher. Buying more affordable than renting in 66 percent of counties The separate Buy-or-Rent analysis released today found that making monthly house payments on a three-bedroom property is more affordable than paying fair market rent on a three-bedroom property in 188 of the 285 counties analyzed (66 percent). The Buy-or-Rent analysis compared the percentage of median household income in each county that would be needed to pay the fair market rent on a three-bedroom property in that county to the percentage of median household income that would be needed to make monthly house payments—including mortgage, insurance and property taxes—on an average-priced three-bedroom property in that county (see full methodology below). Across all 285 counties analyzed, the average percentage of median household income needed to rent was […]
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